To counter the threat possessed by Apple Inc's new Apple Music subscription service, Spotify, the current leader in the music-streaming business organized a new round of funding from investors on Tuesday.
Spotify market value rose to $8.53 billion after collecting $526 million from the latest round of funding from a wide range of global investors, sources told Wall Street Journal.
Till last September, the Swedish streaming service was valued at $5 billion.
According to The Verge, the latest round of funding organized by Spotify began in early April and the company was looking to collect $400 billion.
Even though the company has more than 20 million paying subscribers out of 75 million active monthly users, the company is operating at a loss, making its future uncertain. The company has to pay label owners and musicians for rights and royalties, which takes away more than 70 percent of its revenue.
Since the launch of the company back in 2008, Spotify has paid a total of $3 billion in royalties. As competition heats up in the online music service industry with Apple now entering the space, Spotify needs to look into how it can increase its subscription base - maybe in the near future it will ask its users to shell out more cash for its service - or it will have to renegotiate how it does business with its music partners and music labels to cut down on the outflow of cash in the form of royalties.
According to the company, $300 million was paid in royalties to music partners and music labels in the first three months of 2015. This tell us that the pace in which cash is flowing out of the company in the form of royalties is on the rise, which is why it has to look in deeper as to how its business model is effecting its revenue. Introspection of its business model is required if Spotify wants to fend off competition from its rivals and if it wants to remain number one in the online music service industry. Saying this, however, Spotify is heading in the right direction as it has managed to double its paid subscriber base since May of 2014.
Spotify is losing money may be due to the fact that the company provides free music to its users but the company's strategy to offer free music is eventually to convert its free users base to paid users. Apple does not provide free music and Spotify should follow its lead,Variety said citing industry experts.
Facing competition from Jay Z's Tidal, and especially Apple, the company said it will be adding videos and podcasts to its business.
The companies that poured in cash in the recent funding organised by Spotify are as follows: Baillie Gifford, Landsdowne Partners and Rinkelberg Capital, Senvest Capital, Discovery Capital Management, TeliaSonera AB, Halcyon Asset Management, GSV Capital, D.E. Shaw & Co, Technology Crossover Ventures, Northzone and P. Schoenfeld Asset Management, Goldman Sachs (Global Private Opportunity Partners fund).
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